Not throwing away our Schatz: What kind of public option in the ACA marketplace?

Senator Brian Schatz's proposal to allow any American to buy into Medicaid is frustratingly vague: we don't know the plan design and how it would be integrated into the ACA marketplace, as David Anderson and Loren Adler point out in this Vox roundup of expert assessment.

Two disclosed details are salient, though -- and to me, point toward two essential features of an ACA redesign from the progressive side. The first is the provider payment rate: bumped up to Medicare. The second is a cap on premiums as a percentage of income -- 9.5% -- for any buyer. (Larry Levitt mentions that feature in the Vox roundup; it's apparently not yet part of any published plan outline.)

Those features bring me back to the compromise package floated by the Urban Institute's Linda Blumberg and John Holahan back in January (which in turn built on their 2015 ACA enrichment plan, with concessions to Republicans salted in). That plan included an 8.5% of income cap on premiums for any buyer -- and a cap on payment rates paid to providers (in concert with reinsurance):

Two additional policy strategies would address other sources of high premiums in some nongroup insurance markets: (1) limits on provider payment rates paid by nongroup insurers and (2) government funding for high-risk people, allowing them to be fully integrated into the array of private insurance plans offered through the nongroup market (Blumberg and Holahan 2017)...

The most realistic proposal for addressing both types of concentration is to rely upon the precedent set by Medicare Advantage, a program for which there has been bipartisan support (Blumberg and Holahan 2017). This approach would place a cap on provider payment rates for nongroup insurers and their enrollees. The payment caps could be set at Medicare levels or some percentage above Medicare levels, or they could use some other metric. The cap would apply to in- and out-of-network services. Insurers could negotiate with providers for payment rates lower than the cap, but they would not pay more than the cap. Some providers may choose not to participate, even at rates significantly above Medicare payment levels, but most likely would participate because participation at Medicare rates is high and because the nongroup market represents a small share of the population. This approach would allow more insurers to enter markets where few insurers currently participate. Some insurers currently cannot participate in markets they want to enter because they cannot negotiate competitive payment rates with providers there; with a payment rate cap, they would be able to enter new markets and pay lower payment rates to local providers than they could have negotiated on their own.

A third key element in the Blumberg/Holahan package is stronger subsidies, which capping provider payment rates could go a long ways toward funding (by lowering premiums, in concert with reinsurance). They suggest, among other improvements, that the benchmark plan against which subsidies are set have an actuarial value of 80%, as opposed to the ACA's AV 70% benchmark. AV 80% is roughly comparable to employer-sponsored insurance and should be at least minimally acceptable to people with incomes over 200% FPL.

Schatz is proposing buy-in to a Medicaid plan with an undefined benefit structure (probably different actuarial values at different income levels), which in most of the country means buying into managed Medicaid plans administered by private insurers. And those plans will pay Medicare rates. Would it not be simpler to cap the rates in the existing market, as Blumberg and Holahan propose?

As Loren Adler of Brookings points out in the Vox roundup, it's not clear whether Schatz's plan is designed "to create an uneven playing field favoring the Medicaid buy-in option"-- that is, whether it's meant to spur the private market to better performance or basically squeeze it out. I've argued before that in our current stressed marketplace, where most insurers have loss ratios that have made profits impossible, introducing a public option is pushing on a string; competition from a public source is unlikely to drive private insurers to better performance, and likelier to drive them out. What would create Adler's level playing field is a direct or de facto cap on provider payment rates -- as we have in the managed Medicaid and Medicare Advantage markets.

Those markets may not be the most cost effective way to deliver healthcare access -- but they do exercise at least partially effective cost control, and they do deliver high levels of customer satisfaction. Starting from scratch, single payer might be more cost effective -- but the government- structured insurance markets, with insurers paying providers rates directly or indirectly set by government, strike me as the viable center in the American political system.

It should be relatively simple to structure the ACA marketplace along the lines of managed Medicaid, Medicare Advantage, or some hybrid (Schatz's buy-in is a de facto hybrid). Capping provider payment rates would ideally fund subsidy enrichments that make coverage more affordable for more people. The mystery to me is why the marketplace wasn't structured that way in the first place.

P.S. it's often noted that Medicaid managed care providers like Centene have been the most successful  competitors to date in the ACA marketplace. Some are probably paying roughly Medicaid rates to providers. What I'd love to know is what percentage of enrollees are in plans paying low rates -- say, Medicare or lower.